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Accounting for Different Uncertainties: Implications for Climate Investments?

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  • Svenja Hector

    (ETH Zurich Department of Management, Technology and Economics)

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    Abstract

    The paper clarifies the link between changes in risk aversion and the effect on the consumption discount rate. In a general framework that can cope with various forms of uncertainty, it is shown that the response of the consumption discount rate to a change in risk aversion depends on some fundamental properties of the considered uncertainties. The application of this general result to specific forms of uncertainty extends existing results to more general forms of risk and yields a new result on preference uncertainty.

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    Bibliographic Info

    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2013.107.

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    Date of creation: Dec 2013
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    Handle: RePEc:fem:femwpa:2013.107

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    Related research

    Keywords: Discount Rate; Risk Aversion; Kreps-Porteus-Selden; Risk-Sensitive Preferences; Uncertain Preferences; Climate Change;

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    References

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    17. repec:hal:journl:hal-00267891 is not listed on IDEAS
    18. Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
    19. Ravi Bansal & Amir Yaron, 2000. "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles," NBER Working Papers 8059, National Bureau of Economic Research, Inc.
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    23. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Edilio Valentini & Paolo Vitale, 2014. "Optimal Climate Policy for a Pessimistic Social Planner," Working Papers 2014.33, Fondazione Eni Enrico Mattei.

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